Judge Chiechi wants Mr. Elieff, the petitioner in Taishan Investments, LLC, Bruce Elieff, Partner Other Than The Tax Matters Partner, Docket No. 8404-13, filed 1/5/17, to pick up the words from the 1959 Sid Wayne and Sherman Edwards standard, and report to her as follows.

“…petitioner shall file a status report in which he (1) shall inform the Court how many hours and minutes as of the date of the status report ordered herein he has spent reviewing the proposed closing agreement since it was sent to him a second time on December 2, 2016, and (2) shall explain in detail what his review entailed.” Order, at p. 1.

Bruce has a week. The date of the ordered status report was 12/27/16. I hope he saved his timeslips.

Eighth Circuit Will Join Together

See my blogpost “Whom the Preparer Puts Asunder,” 1/13/14.

Well, Eighth Circuit did buy the much-contemned Glaze decision, and reversed Judge Nega.

See Isaak Abdi Ibrahim v. Com’r, No. 14-2070, 6/10/15.

So in Eighth Circuit country filing HOH is not filing a “separate return” for Section 6013(b)(1) purposes.

Looks like my correspondent Kathryn Sedo, Esq., gets a belated Taishoff “Well Done.”

But I will reiterate my statement from my two-year-old blogpost: “Of course, a single Court of Tax Appeals, having national jurisdiction over a national tax, would eliminate these mental gyrations.”

In my youth, the bargains were found in January, when the bedclothing sales began. I remember hearing about these minutes after the cries of “Happy New Year!”

Well, apparently Judge Morrison continues the tradition in Amnesty National, Docket No. 13961-15L, filed 1/4/17.

Amnesty National was fighting a SNOD for one year, and a NOD for that year and another.

“Through an affidavit and attached documents, the IRS demonstrated that the notice of deficiency had been sent to Amnesty National. The IRS alleged that Amnesty National did not deny receiving the notice of deficiency. In Amnesty National’s response to the motion for summary judgment, Amnesty National did not claim to have received the notice of deficiency. We conclude that Amnesty National received the notice of deficiency. See Rule121(d). It is therefore barred from contesting the amount of its income tax liability for 2008. Sec.6330(c)(2)(B); Treas. Reg. sec. 301.6330-1(e)(3) Q&A-E2.” Order, at p. 4.

I thought that if the SNOD was sent to last known address, receipt by addressee was irrelevant. So whatever Amnesty National claimed about receipt was irrelevant, right, Judge?

Amnesty National got an equivalent hearing as to NFTLs, so those are off the Tax Court radar.

But the CDP for the NITLs are on, except Amnesty National had no collection alternatives. One NITL involved worker classification, Amnesty National got a chance to contest liability, and put in no relevant evidence.

Amnesty National did engage in this litigation, and thereby hangs the cliché.

Of course IRS wants summary J.

“Amnesty National’s response to the motion for summary judgment consists of meritless claims. For example, it asserts that the actions of the IRS are void because IRS employees are not licensed by the State of New Jersey. Amnesty National also claims that the IRS’s motion for summary judgment should be denied because the IRS did not respond to a court paper Amnesty National filed in this case entitled ‘Notice of Motion’. But the Court did not order the IRS to respond to the ‘Notice of Motion’, which consists of legalistic gibberish. Summary judgment in favor of the IRS is merited.” Order, at p. 4.

IRS also wanted a Section 6673 frivolity chop.

Judge Morrison finds Amnesty National both interposed frivolous arguments and prolonged the proceedings to delay payment of taxes, but makes no mention of any previous delictions of that kind. The usual treatment in such case is the yellow card warning that other or further frivolities will lead to the Section 6673 sin bin.

Although Judge Morrison didn’t mention it, Amnesty National had been in Tax Court twelve (count ‘em, twelve) years ago about a dubious refund claim that generated 2004 T. C. Memo. 221, filed 9/29/04, where Judge Chiechi likewise found irrelevant and incomprehensible arguments.

Maybe that was why he didn’t show the yellow card, but handed out a chop.

$200. A bargain.

I’ve often blogged the famous Chenery rule. The administrative record controls; what the agency did, not what the agency might have done, controls.

And Judge Holmes loves Chenery.

But in Richard Conant Giller, Docket No. 16755-14L, filed 1/3/17,  he delves more deeply into the record rule.

IRS wants summary J. But there’s a problem here. There’s a dispute whether a return was filed for the year at issue.

“For his part, respondent did not explain in the notice of determination either that Mr. Giller made this argument or why he was rejecting it. The Chenery rule– that a reviewing court reviews an agency’s action only on the ground the agency itself offers…would ordinarily require that we not uphold the notice of determination for this reason alone. The administrative record, however, makes the Commissioner’s reasoning clear — the settlement officer who conducted the hearing checked IRS records and learned that according to them there was no evidence that Mr. Giller had ever filed a…tax return. If a reviewing court can discern the agency’s reasoning even if it is not completely clear in the agency’s decision, that is good enough to allow that reasoning to be the basis for review.” Order, at p. 1 (Citations omitted).

So IRS claims there’s no evidence RCG filed a return for the year at issue. But RCG claims he did, and proffers evidence never produced at his CDP.

“This proof doesn’t include an actual copy of that return but features instead only a certified-mail receipt that shows he mailed something to the IRS at the time the return was due (although, as he admits, to the wrong IRS address); and a copy of a ‘certificate of electronic filing’ from Intuit tax-preparation software (although without any proof of acceptance of the return by the IRS which, as the Intuit form states, would be proof that the IRS had accepted the return).” Order, at pp. 1-2.

If this case was tried de novo, no summary J.

But it isn’t. This is abuse of discretion. IRS didn’t have this evidence before it when Appeals issued the NOD. Contrary to RCG’s argument, the record was closed.

Anyway, “In the notes from the CDP hearing, the settlement officer noted her disbelief in Mr. Giller’s story — why would someone both e-file and mail something too? And why was there no indication in the IRS’s records of any challenge by Mr. Giller to the substitute for return that the IRS prepared under IRC § 6020(b).” Order, at p. 2.

Takeaway– Put in everything you’ve got at the very beginning.

The “small court” is the home of many technicalities, anfractuosities, circumscribed jurisdiction and characterizations and recharacterizations, that befuddle, bemuse and bewilder even the experienced professional litigator, much less the individual seeking justice for the sixty buck door charge.

Truly, we need a new version of the Twelfth Century “Guide for the Perplexed” for the Tax Court self-represented. The Tax Court website hardly scratches the cliché.

Sometimes the complexities found in the Glasshouse at 400 Second Street, NW, drive even the obvious from minds of the self-represented who enter there.

Thus the title of this little tale, and the case of Peter Wang, 15147-16L, filed 12/30/16, come together.

Ch J L Paige (“Iron Fist”) Marvel has PW’s petition from a NOD, and it bears a USPS 6/25/16 postmark. The NOD was mailed by certified mail on 5/25/16.

IRS moves to dismiss, claiming PW is a day late and a lot more than a dollar short. PW says “No.”

“In petitioner’s opposition, he stated: ‘ The Notice of Determination was dated May 25, 2016 and said that “..you must file a petition with the United States Tax Court within a 30-day period beginning the day after the date of this letter.” Consequently, the 30 day period started on May 26, 2016 and the deadline for filing the petition was June 25, 2016 * * *.” Petitioner correctly understood that the 30-day period started to run on May 26, 2016, but his conclusion that the last date to timely file the petition was June 25 was in error. Because May has 31 days, petitioner’s calculation should have yielded a deadline of June 24, not June 25, 2016. June 25, 2016, yields a result of 31 days, rather than 30 days.” Order, at p. 2.

PW is out.

The official march of the United States Merchant Marine Academy mirrors the career of John Michael Gillespie, Docket No. 729-09L, filed 12/30/16, as IRS signs off for CY 2016 with a designated hitter from The Great Dissenter, f/k/a The Implacable, Indomitable, Indefatigable, Ineluctable, Incomparable, Incontrovertible and Imperturbable Foe of the Partitive Genitive, Old China Hand and Master Silt-Stirrer, Judge Mark V. Holmes.

John Michael is a commercial fisherman. When IRS hit him with a NFTL, John Michael was on the briny deep, so he couldn’t show for the CDP. When he reached dry land he petitioned, and Tax Court remanded his case to Appeals.

John Michael wanted an old overpayment applied to his self-reported but unpaid balance for the year at issue. But the return for the year of the claimed overpayment was filed six (count ‘em, six) years late.

John Michael tries an OIC, but his house and boat have enough equity to pay the tab in full. And the SOL has run, of course, on the year for which he claims the overpayment.

The IRS did send John Michael a letter while John Michael still had a couple months (Happy New Year, Judge Holmes) to file and get the refund before the SOL ran out. The letter said it looked like he had an overpayment, but they couldn’t find his return, and please send it within two weeks. The letter didn’t mention the SOL, but John Michael didn’t file the return until years later.

Section 6511(b)(1) has wrought some tough results, but that’s the law.

Anyway, says Judge Holmes, “Gillespie seems to focus his attention on the fairness aspect by repeatedly noting he overpaid his 1998 taxes. We can’t deny an element of unfairness here -both parties agree the United States Treasury received a little over $7000 more than it was supposed to from Gillespie and he never got it back. But we don’t find such a level of unfairness to find the IRS acted clearly erroneously. See Wai v. Commissioner, 92 T.C.M. (CCH) 181, 2006 WL 2482901, at *6 (upholding the IRS’s refusal of the taxpayer’s offer in compromise, despite acknowledging that the application of the AMT rules to this particular taxpayer may have produced an inequitable result); Murphy v. Commissioner, 469 F.3d 27, 32 (1st Cir. 2006) (noting that the court won’t disturb the IRS’s decision unless the rejection ‘represents a clear abuse of discretion in the sense of clear taxpayer abuse and unfairness by the IRS’). Nevertheless, we needn’t decide if this fact would “’undermine public confidence that the tax laws are being administered in a fair and equitable manner.’ We don’t because even if the IRS could’ve accepted an offer for less than full amount, Gillespie’s offer was for far less than his liability less the lost credit. In other words, Gillespie’s lost refund can’t fully justify the difference between his offer and his true liability, especially when he doesn’t disagree with the IRS’s position that he has sufficient equity to pay it in full.” Order, at p. 5.

IRS wins it.

We have a tale of two Sub S Corps today, one from Judge Paris and one from Judge Kerrigan.

Judge Paris leads off with Ryan M. Fleischer, 2016 T. C. Memo. 238, filed 12/29/16. Ryan’s an investment seller, and he creates a sub S called FWP. Ryan “…was the sole shareholder and the president, secretary, and treasurer of FWP.” Ryan also entered into an employment agreement with FWP a couple weeks (Happy New Year, Judge Holmes) after he incorporated FWP.

But before getting thus employed, Ryan enters into a deal with a financial services company to act as IC salesman. Personally. And a couple of weeks after entering the employ of FWP, Ryan makes a deal with Mass Mutual. Again personally, no mention of FWP.

Ryan filed returns for FWP, showing earnings from the financial services outfit and Mass Mutual, gave himself a salary but paid no SE (although he did claim self-employed health insurance).

IRS says the deals were with Ryan, not FWP, and Ryan should have filed a Schedule C for the whole shebang. And he owes SE.

We all know income is taxable to the one who earned it. But with corporations and other such entities, it’s not so simple.

Judge Paris: “Because it is impractical to apply a simplistic ‘who earned the income’ test when the Court’s choices are a corporation and its service-provider employee, the question has evolved to one of ‘who controls the earning of the income.’  For a corporation, not its service-provider employee, to be the controller of the income, two elements must be found:  (1) the individual providing the services must be an employee of the corporation whom the corporation can direct and control in a meaningful sense…; and (2) ‘there must exist between the corporation and the person or entity using the services a contract or similar indicium recognizing the corporation’s controlling position’…. These elements can be found in the employment tax regulations.  Sec. 31.3121(d)-1(c)(2), Employment Tax Regs. (‘Accordingly, within Regulation § 31.3121(d)-1(c)(2), two necessary elements must be met before the corporation * * * may be considered the true controller of the service-provider.’),  Because both elements must be met before the corporation will be considered to control the service-provider employee and because the Court finds that there is no contract or other indicium that FWP exhibited control over petitioner, the Court will discuss only the second element.” 2016 T. C. Memo. 238, at p. 11. (Citations omitted).

As a well-known on-line chess commentator says “And we can stop here.”

But Ryan didn’t. He says FWP wasn’t licensed as he is (and he has a World Series of licenses), and it would cost millions for FWP to get them.

So what, says Judge Paris. Ryan’s deals were all made by him alone, with no mention of FWP. You still can’t assign income that you earned to someone or something that didn’t. And FWP being duly incorporated doesn’t change that FWP didn’t earn income.

Next is Judge Kerrigan, dealing with an alleged $1.88 million in TFRPs owed by Sam T. Jewell, 2016 T. C. Memo. 239, filed 12/2916.

Sam is another Sub S specialist, but this time all the properties and everything else is properly titled to his Sub Ss, scattered all over the OK landscape.

IRS hits Sam with a bunch of NFTLs. Sam wants a CDP, but his only claim is that IRS filed liens against him where he did not own property.

Now we all know the one-CDP-per-liability rule.

“Section 6320(b)(2) imposes a qualification on subsection (b)(1) by providing:  ‘A person shall be entitled to only one hearing under this section with respect to the taxable period to which the unpaid tax specified in subsection (a)(3)(A) relates.’” 2016 T. C. Memo. 239, at p. 9.

The first NFTL was filed in TX. Sam had notice, but didn’t file a 12153 on that, so he has no chance to contest liability on the rest.

But is there abuse of discretion in filing a bunch of liens?

IRS wants record rule: only the administrative record is subject to review. Judge Kerrigan blows that off.

Judge Kerrigan: “The Court has previously held that it is not required to apply a limited standard of review and may accept evidence outside the administrative record in CDP cases.  See Robinette v. Commissioner, 123 T.C. 85,101 (2004), rev’d, 439 F.3d 455 (8th Cir. 2006); see also Murphy v. Commissioner, 125 T.C. at 313.  The broad scope of review in Robinette is not controlling in the First, Eighth, and Ninth Circuits.  See Dalton v. Commissioner, 682 F.3d 149 (1st Cir. 2012), rev’g 135 T.C. 393 (2010); Keller v. Commissioner, 568 F.3d 710, 718 (9th Cir. 2009), aff’g in part as to this issue T.C. Memo. 2006 166; Robinette v. Commissioner, 439 F.3d 455.” 2016 T. C. Memo. 239, at p. 12. I cite the cases so you can put them in your next memo of law.

But Sam’s from OK, OK is in Tenth Circuit, Tenth Circuit hasn’t ruled, the 2015 change in Section 7482(b)(1)(G) came after Sam’s petition and plays no part here, so Judge Kerrigan lets it all hang in.

Once again, arbitrary lines on a map decide issues of national import.

But once it all goes in, it doesn’t matter.

“Pursuant to section 301.6320-1(b)(1) and (2), Proced. & Admin. Regs., petitioner is entitled to a hearing with respect to the first NFTL that is filed regarding the unpaid tax for a particular period.  Section 6320 does not address explicitly whether the right to an administrative hearing and judicial review is tied to the first filed NFTL.  Where a statute is ambiguous or silent, we look to the legislative history to determine congressional intent.” 2016 T. C. Memo. 239, at p. 15.

The Conf. Report says Appeals can consider only NFTL One. And TX beat the OK barrage by one hour, CST.

So what, says Sam, I didn’t own no property in TX neither.

Judge Paris isn’t impressed: “During the administrative proceeding, in response to the settlement officer’s questions as to what property petitioner owned and where it was, including questions as to possible ‘nominee property, alter ego property or any other co-mingled [sic] property’, petitioner responded that the settlement officer was raising a ‘new issue’.  Hence, petitioner relies solely upon his lack of record title to any property, real or personal, in Garvin County, because he owned property in that county through his wholly owned S corporation.

“Petitioner is the sole shareholder of numerous S corporations which operate nursing home facilities throughout Oklahoma, including the nursing home facility business which petitioner and his S corporation…operate in Garvin County.  We conclude that it was not an abuse of discretion for respondent to sustain the Garvin County NFTL.  That NFTL was filed to protect the Government’s interests because petitioner operates a nursing home facility in that county through his S corporation.” 2016 T. C. Memo. 239, at p. 18.

And Sam’s representative at the hearing dodged whether Sam’s S Corp was a nominee or alter ego, both of which OK State law recognizes.

Sam claims the NFTLs wound up in the local paper and devastated his finances, but has no proof.

One strike and you’re out, Sam.

Operating Status–Washington, DC:

The United States Tax Court will be closed January 19 and 20, 2017.

eFiling and eAccess will be available. Taxpayers may comply with statutory deadlines for filing petitions or notices of appeal (both of which types of documents must be filed in paper) by timely mailing a petition or notice of appeal to the Court. Timeliness of mailing of the petition or notice of appeal is determined by the United States Postal Service’s postmark or the delivery certificate of a designated private delivery service.

George Bernard Shaw’s disparaging phrase doesn’t disparage me. I don’t write poetry. What I do is discuss the doings of the “small court,” the sixty-buck ticket-to-justice, the play-before-you-pay arena where all the world goes up, each from their own village, when they’ve been taxed and don’t like it.

I don’t write lengthy exegeses. I wasn’t on law review, so I can’t measure success by how much the number of footnotes exceeds the number of words in any piece of mine.

I’m strictly a Habakkuk 2:2 kind of guy.

Every so often someone reads this my blog.

Sometimes they like it. At even rarer whiles they may pass me a brief compliment. Even more rarely, they heave a metaphorical brick at my cyberwindow.

I’m told my pieces are even read within the sacred precincts of Tax Court itself…sometimes.

So you’ll excuse a very small cough when I get this e-mail from Twitter.

See my blogpost “Amen, Judge Posner,” 12/22/16.

Linda Lingo slides under the IRS tag in a designated hitter, with The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a Reformed Foe of the Partitive Genitive, Old China Hand and Master Silt Stirrer, Judge Mark V. Holmes calling the play.

It’s Kristopher L. Lingo, et al., Docket No. 17356-12, filed 12/28/16. Linda’s one of the als. But Kris, Linda and son Matthew all had IRAs.

All three IRAs made loans. We call such people and entities “hard money lenders.” They don’t bother with paper, but love very low loan-to-value ratios and high interest rates. We’re concerned with Linda’s IRA here.

Former husband Kris “…owned a corporation called STDS. STDS found borrowers for would-be lenders, including the Lingos’ IRAs. Loans and interest would then pass through STDS between the Lingos’ IRAs and borrowers. The Commissioner thought all this added up to multiple prohibited transactions under IRC § 4975 and he sent the Lingos notices of deficiency for the tax years 2004-2008. This case is complicated by the Lingos’ divorce in February 2005, which affected whether Ms. Lingo was a disqualified person.” Order, at p. 1. (Contrary to my usual custom, I mention the dates because they’re crucial).

Linda claims she never did a prohibited before the divorce, even if she was a disqualified person for Section 4975 purposes, and couldn’t be afterwards, as she was no longer married to Kris.

She wants partial summary J. IRS has only the Michael Corleone gambit.

First, IRS claims her affidavits are self-serving. OK, so rebut them.

Then IRS claims that Linda had a piece of STDS. “But the Lingos point to Mr. Lingo’s affidavit that says he was the sole shareholder in 2004. There’s also a signed copy of the Lingos’ settlement agreement, where Ms. Lingo waived any interest after the divorce. Even if the affidavit and settlement agreement didn’t exist, this fact isn’t material because STDS already counted as a disqualified person for Ms. Lingo under the family attribution rules of section 4975. The Commissioner rests on his allegations and doesn’t produce evidence to dispute the affidavit or settlement agreement.” Order, at p. 2.

If STDS was a Corp, be it C or S, why didn’t IRS pull the 1120 whatever, and the K-1s if an S, and put all that in evidence? Would that evidence have sunk them?

Next, “The Commissioner also questions whether a trust fund that received payments from STDS and sent them to Ms. Lingo’s IRA existed. But there are documents showing the trust fund existed and the Commissioner doesn’t produce any documents disputing this. In fact, it seems the Commissioner knew about the trust fund since the original audit.” Order, at p. 2.

Two more tries, neither particularly successful.

“The Commissioner says the Lingos admitted STDS retained fees in Mr. Lingo’s affidavits. But that’s only partly true. Mr. Lingo acknowledges STDS retained fees, but not until two years after the Lingos’ divorce. That time line is important because the Commissioner’s argument here centers around 2004. The Commissioner hasn’t produced any conflicting evidence here either. He did produce documents suggesting STDS received compensation for some transactions, but these transactions also didn’t occur until after the divorce.

“The Commissioner’s last argument is that there’s a factual dispute about whether the Lingos received income from STDS. Again, Mr. Lingo’s affidavit says the STDS payments to the IRAs were only payments from borrowers passing through STDS. STDS acted only as a conduit. And again, the Commissioner doesn’t offer any evidence disputing the affidavit – he just says the Lingos should produce more documents to support their affidavit. That’s not enough to overcome the Lingos’ motion for partial-summary judgment.” Order, at p. 3

But the Lingos must still show they are entitled to a partial summary J.

“Section 4975(c)(1)(C) prohibits a disqualified person from furnishing ‘goods, services, or facilities’ to a plan. There’s no dispute that Ms. Lingo’s IRA counts as a plan under section 4975(e)(1)(B). The next question is who counts as a disqualified person? The answer is — at least before the divorce — a number of people. Ms. Lingo, as the IRA’s owner, is a fiduciary and disqualified person of her IRA because she controls it. Sec. 4975(e)(2)-(3); Ellis, 106 T.C.M. (CCH) 468, 2013 WL 5807593 at 5. Mr. Lingo — again, at least before the divorce — was a disqualified person for Ms. Lingo’s IRA since he was Ms. Lingo’s spouse. Sec. 4975(e)(2)(F), (6). And then there’s STDS. It’s a disqualified person because it’s owned by a disqualified person — Mr. Lingo. Sec. 4975(e)(2)(G).

“That brings us back to 4975(c)(1)(C). STDS — a disqualified person -provided services to Ms. Lingo’s IRA, which counts as a plan. STDS received money from borrowers and sent the money on to the IRA, which counts as a service as respondent argues.” Order, at p. 3.

OK, so Linda’s IRA is disqualified?

That’s a thwacking big negatory, good buddy. Even the Supremes agree that unless the service provider is compensated for said services, Section 4975 is off the table.

“The Supreme Court itself has held that a gratuitous transfer from a disqualified person to a plan is not a prohibited transaction. Commissioner v. Keystone Consolidated Indus., Inc., 508 U.S. 152, 161 n.2 (1993). And this is a solid textual basis for this commonsense result: The six types of prohibited transactions in § 4975(c)(1) are colored by the last two, which bar a fiduciary who deals with a plan’s property as his own, or who receives compensation in connection with a transaction involving a plan’s property. The seemingly more general language of§ 4975(c)(1) – (4) in no way shifts the focus of the prohibition away from a misbehaving ‘disqualified person.’ In the case of services, the more general language of ‘furnishing . . . between a plan and a disqualified person’ includes situations where such a person contracts with a plan to provide services or somehow has a plan provide services to him. In either scenario a plan’s property is at risk — is too much being charged to the plan? Is it given too little in exchange? — in a way that it isn’t with gratuitous services of the type STDS provided here.

“This becomes even more clear when one looks at § 4975(d)(2), which exempts from the prohibition services provided by a disqualified party to a plan so long as ‘no more than reasonable compensation is paid.’ The regulations then provide that a ‘disqualified person’ who provides services without consideration isn’t committing a prohibited transaction under § 4975(c)(1)(E) or (F). 26 CFR § 54.4975-6(a)(5)(ii) and (iii). We hold likewise that STDS’s minor services to Mrs. Lingo’s IRA were not prohibited transactions because zero compensation is ‘no more than reasonable compensation.’” Order, at p. 4 (Footnote omitted, but it says Section 4975(f)(4) measures damages for prohibited services transactions based on the amount of “excess compensation.”).

Now guys, says Judge Holmes, y’wanna get on the pretrial order track, or maybe so discuss settling?

And a tip of the battered Stetson to San Diego charger Mitchell Barry Dubick, Esq. A Taishoff “Good Job,” sir.